All about Blockchain – Introduction

Blockchain is a disruptive technology that is going to transform many industries in near future. Bitcoin is one of its implementation. Let’s check what is Blockchain is all about.

What is Blockchain?

A Blockchain is an immutable, secure, digital, distributed ledger without a central authority, which uses public/private signature technology to validate and record transactions in near real-time. It is nothing but a data structure which works as decentralized database or a distributed ledger that stores a registry of assets and transactions over a peer-to-peer network of computers.

Blockchain’s distributed digital ledger contains cryptographically signed transactions that are grouped into blocks. Each Transaction recorded in the database is digitally signed and mathematically guaranteed to be authentic and resistant to fraud. Each block is cryptographically linked to the previous one after validation and undergoing a Proof of Work or Consensus decision. As new blocks are added, older blocks become more difficult to modify, thus immutable. New blocks are replicated across all copies of the ledger within the network/nodes, and any conflicts are resolved automatically using established rules.

Blockchain Internals:

1. Blockchain uses a Distributed Ledger to track transactions

2. A Ledger is a Immutable (append only) database most commonly used in accounting

3. Same copy of the data distributed across all the participating Nodes (Decentralized)

4. All new transactions are securely encrypted and then broadcast across the Blockchain network to be added to the system

5. Participants in the Blockchain verify the transaction is valid and then writes it to the Ledger

6. Transactions are grouped together in Blocks. Blocks are linked to previous Blocks, which make the blockchain.

7. The Transaction chain tracks how ownership changes, while the Block-Chain tracks the order of transactions.

Example: how Blockchain works?

2. A Transaction record is created which contains the transaction details and digital signatures from both persons/parties.

2. The Transaction is broadcasted to the network for verification by the various computer nodes to make sure if the transaction details are valid.

3. On successful validation of Transaction is accepted in the network and added to a Block. Each block contains a unique code called a Hash, it also contains the hash of the previous block in the chain.

4. The verified Block is added to the Blockchain. The Hash codes connect the blocks together in a specific order.

… However this does not look as simple as mentioned above. There goes lot of computations and verifications to make sure what transactions are valid and to add them to the Blockchain.

Blockchain vs Traditional Ledgers:

– Traditional Ledgers are centralized and thus requires third Party authority and middlemen to authenticate, approve and record Transactions.

– But Blockchain safely distributes ledger across the entire network and does not require any middlemen.

Click to expand

Blockchain implementations:

– Eliminates Intermediaries: Allows industries to redefine or create new business models.

4. Movement of assets
– Transferring money from one person/entity to another.
– Enabling direct payments, once a work condition has been performed.

Blockchain implementations:

1. Bitcoin or BTC serves as the cryptographically secured unit of value, numeraire (standard for currency exchange) and currency in the case of the Bitcoin protocol and hybrid fuel/currency used as a Cryptocurrency.

2. Ethereum or ETH serves as the cryptographically secured unit of value, numeraire and hybrid fuel/currency for the Ethereum protocol.

3. Ripple, LiteCoin, etc.

Blockchain Network Types:

1. Public:
– Many unknown participants, like Banks, Traders, Financial firms etc.
– Writes by all participants
– Reads by all participants
– Consensus by Proof of Work

2. Private:
– Known participation from one organization, like a Bank
– Write permission centralized
– Reads may be public or restricted
– multiple algorithms for consensus

3. Consortium:
– Known participation from multiple organization
– Write requires consensus from several participants
– Reads may be public or restricted
– multiple algorithms for consensus